Retirement Plan Deductions for Cleaning Business | Opora

Retirement Plan Deductions for Cleaning Business Owners

Answer

A Solo 401(k) allows up to $69,000 in contributions for 2024 ($76,500 if age 50+) and must be established by December 31. A SEP-IRA can be opened until your return due date plus extensions (October 15) but requires you to contribute the same percentage to any employee who worked 3 of the last 5 years, earned $750+, and is 21+.

SEP-IRA contribution at $150,000 net profit: approximately $27,900 (20% of net profit after SE tax adjustment).
Solo 401(k) employee deferral of $23,000 is available regardless of profit level, then add profit-sharing on top.
SIMPLE IRA must be established by October 1 of the contribution year and requires employer match or 2% non-elective contribution.

$69,000 2024 maximum contribution

Opora Editorial team Published August 8, 2026 Updated June 15, 2026 5 min read 1311 words Sourced & fact-checked

$69,000

2024 maximum contribution to a Solo 401(k) or SEP-IRA, at the 22% federal bracket, contributing the maximum saves $15,180 in income tax in a single year, plus additional state income tax savings

Source: IRS Notice 2023-75; IRS Publication 560; IRC §401(k), §408(k)

Retirement accounts are the most consistently underused tax reduction tool for cleaning business owners. Every dollar you contribute to a qualifying plan reduces your taxable income dollar-for-dollar. A SEP-IRA contribution of $17,500 (25% of a $70,000 salary) saves approximately $3,850 in federal income tax immediately, and the money is still yours, growing tax-deferred for retirement.

This guide covers the three plans that work best for cleaning operators: SEP-IRA, Solo 401(k), and SIMPLE IRA. It explains contribution limits, setup requirements, and the math behind the tax savings.

The Tax Mechanics

Retirement plan contributions reduce your adjusted gross income (AGI). This affects:

Federal income tax: the deduction reduces taxable income before the rate is applied
State income tax. Most states follow federal treatment; retirement contributions typically reduce state AGI too
QBI deduction: retirement contributions reduce QBI (since they reduce net income), which slightly reduces the §199A deduction

The interaction with QBI deserves attention. At very high retirement contribution levels, some operators inadvertently reduce their QBI so much that the 20% QBI deduction becomes binding. Use the Opora Retirement Contribution Calculator to model the optimal contribution level accounting for QBI.

SEP-IRA: The Simplest Option

A Simplified Employee Pension (SEP-IRA) is the go-to retirement plan for solo cleaning operators and small businesses with minimal staff.

Contribution limit (2024):

Up to 25% of net self-employment earnings (sole prop / LLC), or
Up to 25% of W-2 compensation (S-corp owner-employee)
Maximum: $69,000

Net self-employment income calculation for SEP-IRA purposes: Net profit − (SE tax deduction × net profit) = Net self-employment income Then: Net SE income × 0.25 / (1 + 0.25) ≈ 20% of net profit (before SE deduction)

Example: $100,000 net profit → approximately $18,587 SEP-IRA contribution limit Example: $150,000 net profit → approximately $27,881 SEP-IRA contribution limit

Key advantages:

Contribution deadline extends to return due date plus extensions (October 15 for calendar-year operators using extensions)
Simple to open at any brokerage (Fidelity, Vanguard, Schwab)
No annual filing required (no Form 5500 for plans with fewer than 100 participants)
Can be funded in February/March of the following year for the prior tax year

Key disadvantage:

If you have employees who've worked for you 3 of the last 5 years, earned at least $750, and are 21+, you must contribute the same percentage to their accounts as to yours. For labor-intensive cleaning businesses with stable crews, this can be expensive.

Solo 401(k): Highest Contribution Limit

A Solo 401(k) (also called an individual 401(k) or one-participant 401(k)) is the highest-contribution retirement plan available to cleaning operators without employees (other than a spouse).

Contribution limit (2024):

Employee elective deferral: up to $23,000 ($30,500 if age 50+)
Employer profit-sharing contribution: up to 25% of W-2 compensation (S-corp) or 20% of net self-employment income (sole prop)
Total limit: $69,000 ($76,500 with catch-up for 50+)

Why it beats SEP-IRA at lower income levels: At $80,000 net profit:

SEP-IRA limit: approximately $14,600 (20% of net profit after adjustments)
Solo 401(k): up to $23,000 (employee deferral) + profit-sharing contribution = potentially $37,600+

The employee elective deferral component means you can contribute up to $23,000 regardless of profit level (as long as you have at least $23,000 in earned income), then add the profit-sharing contribution on top.

Requirements:

Must be established by December 31 of the contribution year
W-2 employees (other than spouse) are not eligible, even one part-time employee triggers full 401(k) plan requirements
Requires Form 5500-EZ filing once plan assets exceed $250,000

Retirement Plan Contribution Limits: Cleaning Business Owner at $150,000 Net Profit, 2024 Source: IRS Notice 2023-75; IRS Publication 560; IRC §401(k), §408(k)

Plan	2024 Limit	At $150K Profit	Est. Tax Savings (22%)	Employee Inclusion?
Traditional IRA	$7,000	$7,000 (phase-out at $77K AGI single)	~$1,540	No
SEP-IRA	25% comp, max $69K	~$27,900	~$6,138	Yes (3 of 5 yr)
Solo 401(k)	$69,000 ($76,500 if 50+)	Up to $46,900+	~$10,318+	No (owner/spouse only)
SIMPLE IRA	$16,000 employee deferral + match	~$20,800 (incl. 3% match)	~$4,576	Yes (required)
Defined Benefit Plan	Based on target benefit, up to $275,000	$60,000–$100,000+	$13,200–$22,000+	Yes (complex)

SIMPLE IRA: For Teams With Employees

If your cleaning business has employees you want to include in a retirement plan, the SIMPLE IRA (Savings Incentive Match Plan for Employees) is the simplest option.

Employee contribution limit (2024): $16,000 ($19,500 if 50+)

Employer obligation: Choose one of:

Match employee contributions dollar-for-dollar up to 3% of compensation, or
Non-elective contribution of 2% of compensation for all eligible employees

Pros: Simple administration, low cost, no Form 5500 required (under 100 employees) Cons: Employer match is required; contribution limits are lower than Solo 401(k)

Establishment deadline: Must be set up by October 1 of the year for which contributions are made. This is an important distinction from SEP-IRA (can be set up up to the return due date) and Solo 401(k) (December 31).

SVG Chart: Solo 401(k) vs. SEP-IRA at Different Profit Levels

Comparison Matrix: Choosing the Right Plan

Retirement Plan Selection Guide for Cleaning Business Owners

Situation	Best Plan	Why
Solo operator, no employees	Solo 401(k)	Highest contribution at any profit level
Solo operator, high profit ($200K+)	Solo 401(k) or SEP-IRA	Both reach max $69K; SEP is simpler
1–10 employees, want simplicity	SEP-IRA	Easy to administer; contributions are flexible year to year
10+ employees, budget for benefit	SIMPLE IRA	Low cost, simple administration vs. full 401(k)
Age 55+, maximum tax savings	Defined Benefit Plan	Can contribute $100K+ annually; complex to administer

This guide is part of Business Taxes for Cleaning Companies in the Operator Blueprint.

Frequently Asked Questions

Can I have both a SEP-IRA and a Solo 401(k)?

You can, but the IRS looks at your total contributions across every plan you sponsor, and that combined figure still has to land under the annual cap of $69,000 for 2024. Running both rarely buys you anything extra. Once a Solo 401(k) is in place, it already reaches the same ceiling, so a second plan mostly adds paperwork and another account to reconcile at year end.

My cleaning business is an S-corp. Can I still contribute to a SEP-IRA?

Yes. As an S-corp owner-employee you fund the SEP-IRA in your employee capacity, and the math runs off your W-2 compensation rather than the company's profit. The contribution can go up to 25% of that salary, capped at $69,000. On the business side, the S-corp takes a compensation deduction for the employer contribution.

What if I contribute more than the allowed limit?

Overfunding triggers an excise tax and a required correction rather than a quiet adjustment. A 401(k) excess runs into a 6% excise tax under IRC §4979; a SEP-IRA excess carries a 10% excise tax instead. The fix is to withdraw the excess along with any earnings it generated before your return's due date, which keeps the penalty off the table.

My spouse helps run the business. Can they contribute to my Solo 401(k)?

If your spouse is on the payroll as a W-2 employee of the business, they can participate in the same Solo 401(k) as an employee. That effectively doubles your household's contribution capacity in a single year. Owner-spouse teams who already share the work of the company often treat the plan as a two-person vehicle for exactly this reason.

How we built this guide

Opora editorial sources from BLS OEWS wage tables, ISSA-447 production rates, NCCI workers' compensation classifications, EPA List N, OSHA 29 CFR standards, and primary state regulatory filings. We don't recycle blog posts: we audit primary documents.

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